The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The principal of a now-defunct Bahamian broker/dealer has conceded defeat in his legal battle with US federal regulators, and is now exposed to summary judgments he cannot pay.

US attorneys for Warren Davis and his Gibraltar Global Securities, in filings with the southern New York district court last week, said their client had “exhausted his resources and ability to defend himself” against two Securities & Exchange Commission (SEC) lawsuits.

Philip Patterson, of the DeFeis, O’Connell and Rose law firm, said in an April 14, 2015, affidavit that Mr Davis “does not intend to continue defending himself” in either matter.

Documents obtained by Tribune Business reveal that Mr Davis, rather than continue paying legal fees, had made settlement offers to the US capital markets regulator that were rejected.

The Gibraltar principal is now stuck with “significant outstanding arrears” in legal fees which, Mr Patterson said, he is likely to become current with.

And, if the SEC is successful in obtaining summary judgments against him in both cases, Mr Davis has warned he will be unable to pay the sums being sought by the US federal regulator.

Mr Davis and Gibraltar, which is no longer in business, have been fighting two SEC lawsuits for the past three years, with the investigations against them and others starting in 2012.

“In the past few months, Mr Davis has attempted to settle these matters, offering funds that otherwise would have been expended in litigation,” Mr Patterson alleged.

“These efforts have not been successful, and Mr Davis has continued to incur significant legal expenses. The defendant Gibraltar is defunct, and has no significant assets or interest, financial or other, in the outcome of these proceedings.

“In the event the SEC is successful, Mr Davis advises that he is unable to pay a judgment anywhere near the anticipated demands of the two separate SEC offices.”

Mr Patterson, who is seeking court approval to withdraw from the case, added: “We have recently been directed by Warren Davis to cease all representation in these actions, and to seek to withdraw as counsel for the defendants.

“Mr Davis advises that defending the two SEC investigations and actions since 2010 has simply exhausted his resources and his ability to defend himself. Mr Davis also advises that he does not intend to continue defending himself in these actions.”

Mr Davis’s decision to effectively ‘throw in the towel’ and submit, having been ground down by the SEC’s financial muscle, came just one day before he had to comply with the southern New York district court’s order to produce thousands of documents held in the Bahamas.

These relate to dealings between Gibraltar and its clients, and their production had been vehemently opposed by Mr Davis and his attorneys.

They had argued that these documents were not in their control because Gibraltar had been voluntarily wound-up in late August 2012, meaning it was the liquidator that held them.

And Mr Davis had also feared that, in the absence of a Supreme Court order authorising the document handover, he and Gibraltar would breach Bahamian law and their duty of confidentiality to clients.

The documents seen by Tribune Business make clear that, by ceasing to defend himself and Gibraltar, Mr Davis is hoping to avoid producing the documents sought by the SEC. And, in turn, to escape any “liability” involved in doing so.

“Since he will not be defending these actions, Mr Davis believes the document production is or should be moot,” court filings state.

However, their battle with the SEC has not been totally-one sided. Mr Davis and Gibraltar were successful in getting the southern New York court to throw out the most serious charge against them - that of knowingly participating in, and facilitating, a securities fraud.

That related to just one case, in which the SEC is claiming the Bahamian duo participated in an unregistered share offering for two companies, Pacific Blue and Tradeshow, which netted $11 million.

In the second lawsuit, the SEC is alleging Mr Davis and Gibraltar were involved in another “illegal unregistered [share] offering and sale” for Magnum d’Or, a small, thinly-traded company.

Some 10 million shares were allegedly sold by Gibraltar on behalf of US customers, netting proceeds of more than $11.384 million.

The Bahamian duo were also alleged to have operated as an unlicensed broker by using their website to solicit US clients, facilitating the sale of $100 million worth of securities.

Mr Patterson said Mr Davis and Gibraltar could thus find themselves litigating against the SEC in two separate cases, having already spent “significant amounts” in legal fees.

“Despite diligent good faith efforts by Mr Davis to pay outstanding legal expenses, as of April 14, 2015, DeFeis, O’Connell and Rose has a significant outstanding arrears,” he revealed. “Mr Davis does not expect to be able to become current or to fund future legal expenses.”

As for Gibraltar itself, Mr Patterson said: “Gibraltar ceased operations in 2012. Gibraltar has no employees. It attempted to enter into liquidation in the Bahamas, but the Securities Commission of the Bahamas refused to accept surrender of its registration.

“With no employees, no Board of Directors and an uncertain legal status, Gibraltar is unable to function and certainly unable to make payments for legal services.”